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unit-3-cash-book-and-bank-reconciliation

Unit-3 Cash Book And Bank Reconciliation

In this unit you will learn about the most important subsidiary book called Cash Book.

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Why is cash book adjusted? Explain how Bank Reconciliation Statement is prepared with an adjusted balance of cash book?

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Learning Pundits Content Team

Written on Apr 16, 2019 1:16:48 PM

  • By comparing the entries in the cash book with those in the pass book you can easily ascertain the exact causes of difference between the balance as per cash book and the balance as per pass book. In order to reconcile these balances every firm prepares a statement showing all the causes of differences. This statement is called Bank Reconciliation Statement and is prepared periodically. The main objective of preparing such a statement is to account for the difference between the cash book and the pass book balances and pass the necessary correcting entries in the books of the firm.
  • Thus, Bank Reconciliation Statement can be defined as a statement which reconciles the balance as per cash book and the balance as per pass book showing all causes of difference between the two.
  • The Bank Reconciliation Statement is prepared at the end of a quarter, half year or a year as the firm may consider desirable and convenient.
  • It can be prepared in two ways : i. Take the balance as per cash book as the starting point, adjust the effect of each item causing the difference, and arrive at the balance as per pass book, ii. Take the balance as per pass book as the starting point, adjust the effect of each item causing the difference, and arrive at the balance as per cash book.
  • Whatever be the method, first of all you must analyze the effect of each item on the balance of the book which you are using as the starting point. In other words, whether it has led to a higher balance or a lower balance in that book. This helps you to decide whether a particular item is to be added to, or subtracted from, such a balance.